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E8– 4

Gemini Ltd. has accounts receivable of $ 370,000 at March 31, 2012. An analysis of the accounts shows these amounts:

Month of Sale                       2012                 2011

March                                $260,000          $300,000

February                             50,400               32,000

January                               34,000               9,600

October– December         25,600               4,400

 All                                     $ 370,000         $ 346,000


Credit terms are 2/ 10, n/ 30. At March 31, 2012, there is an $ 8,800 credit balance in the allowance account before adjustment. e company estimates its uncollectible accounts as follows:


Number of Days Outstanding             Estimated Percentage Uncollectible

               0– 30                                                               2%

              31– 60                                                            10%

              61– 90                                                             30%

             Over 90                                                             50%



( a) Prepare an aging schedule to determine the total estimated uncollectibles at March 31, 2012. ( b) Prepare the adjusting entry at March 31, 2012, to record bad debts expense. ( c) Discuss the implications of the changes in the age of receivables from 2011 to 2012.


P8– 6B

An aging analysis of Reiko Limited’s accounts receivable at December 31, 2012 and 2011 showed the following:


Number of Days                             Estimated                                December 31

   Outstanding                   Percentage Uncollectible                 2012            2011

     0– 30 days                                       3%                                $ 240,000      $ 220,000

    31– 60 days                                      6%                                  104,000        86,000

     61– 90 days                                    12%                                   62,000        52,000

    Over 90 days                                    20%                                  34,000         22,000

       Total                                                                                        $440,000     $380,000


1. At December 31, 2011, the unadjusted balance in Allowance for Doubtful Accounts was a credit of $ 3,000.

2. In 2012, $ 28,000 of accounts were written o as uncollectible and $ 3,000 of accounts previously written o were recovered.


Instructions ( a) Prepare an aging schedule to calculate the estimated uncollectible accounts at December 31, 2011 and 2012. Comment on the results. ( b) Record the adjusting entry relating to bad debts on December 31, 2011. ( c) Record the write - o of uncollectible accounts in 2012. ( d) Record the collection of accounts previously written o in 2012. ( e) Prepare the adjusting entry relating to bad debts on December 31, 2012. ( f) Calculate the net realizable value of Reiko accounts receivable at December 31, 2011 and 2012. ( g) Do you think that Reiko was conservative when estimating its bad debts expense? Explain.



E9– 8

Presented here are selected transactions for Spector Limited for 2012. Spector uses straight - line depreciation.


Jan. 1 Sold a delivery truck for $ 10,000 cash. e truck cost $ 62,000 when it was purchased on January 1, 2010, and was depreciated based on a four - year useful life with a $ 6,000 residual value.


Sept. 1 Sold computers that were purchased on January 1, 2010. ey cost $ 10,980 and had a useful life of three years with no residual value. e computers were sold for $ 1,500 cash.


Dec. 30 Retired equipment that was purchased on January 1, 2003. e equipment cost $ 150,000 and had a useful life of 10 years with no residual value.


Instructions. Record the above transactions.



Altona Limited purchased delivery equipment on March 1, 2010, for $ 130,000 cash. At that time, the equip - ment was estimated to have a useful life of ve years and a residual value of $ 10,000. e equipment was disposed of on September 30, 2012. Altona uses the diminishing - balance method with a 20% rate of depreciation and has an August 31 year end.


( a) Record the acquisition of equipment on March 1, 2010.

( b) Record depreciation at August 31, 2010, 2011, and 2012.

( c) Record the disposal of the equipment on September 30, 2012, under each of the following independent assumptions:

1. It was sold for $ 60,000.

2. It was sold for $ 80,000.

3. It was retired.



P9– 5B

Fast Arrow Ltd. purchased a new bus on October 3, 2012, at a total cost of $ 130,000 each. Management is con - templating the merits of using the diminishing - balance or units - of - production methods of depreciation instead of the straight - line method, which it currently uses for other buses. e new bus has an estimated residual value of $ 10,000, and an estimated useful life of either three years or 300,000 km. Use of the bus will be sporadic so it could be much higher in some years than in other years. Assume the new bus is driven as follows: 15,000 km in 2012; 130,000 km in 2013; 65,000 km in 2014; and 90,000 km in 2015. Fast Arrow has an October 31 year end.



( a) Prepare separate depreciation schedules for the life of the bus using the straight - line method, the double diminishing - balance method, and the units - of - production method.

( b) Compare the total depreciation expense and accumulated depreciation under each of the three methods over the life of the bus.

( c) How does each di erent method of depreciation a ect the company’s cash ows?

( d) Which method do you recommend? Why?

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